Reporting liabilities

12 June 2014 By Daniel Indiviglio

State and local government retirement funds may now be able to cover 81 pct of expected payouts. It’s thanks to an accounting tweak that allows for clearer asset values but also increases volatility. More realistic number-crunching would at least triple shortfalls to $3 trillion.

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Improving asset prices and a new accounting standard could make public pension funds in America look healthier, according to a report on state and local government funds by Boston College’s Center for Retirement Research.

Released this week, the research examines, among other issues, the effect of new rules introduced by the Governmental Accounting Standards Board that take effect in 2014. These mandate that asset prices be calculated at market value instead of smoothed over a period of years. This improves the aggregate funding ratio for 2014 to 81 percent from 75 percent last year, the CRR estimates.

The report also explains that a new discounting methodology could result in the ratio sinking as low as 70 percent, depending on how aggressively funds adopt the more conservative assumption.

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